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Sunil Shah was the highly regarded mid/small cap fund manager at Coronation more than a decade ago. He left to pursue a passion for writing; his debut novel, White Man’s Numbers provides a fascinating insight into the underbelly of financial markets. Set in London and SA, it’s a page turner for anyone wanting to understand how characters and personalities creates imperfections in market outcomes. Shah’s occasional contributions to Biznews are always very well received. In this one, he wonders at the silence of Corporate South Africa over the Nene firing – with the exception of a man he hired, Coronation’s Chief Investment Officer Karl Leinberger. Although in truth he might have added the straight talking former JSE chief executive Russell Loubser to that tiny group. Shah offers much food for thought. And leaves us wondering whether the Nene debacle will be a subject for his next book. Given his years working inside SA financial markets, there are surely few writers better qualified to explain how these things go down. – Alec Hogg
By Sunil Shah*
Let me set the scene. It was 2002. As the Strategist and Mid/Small cap Fund Manager at Coronation, I needed to hire an analyst. A young boy/man came in for the interview, having been selected from +100 CVs. I noticed he sported a tiny tuft of hair below his lower lip. I tried not to let that put me off. I put him through the natural drill of the numbers: getting to cash flow from net profit and working his way round a company’s financial statements; how a PE ratio should be evaluated; his numeracy, his knowledge of the economy, macro-economic forces and the inter-relationships…
He was remarkably calm, articulate and confident He stood his ground – calmly and rationally under deliberate pressure. I compelled myself to ignore that ridiculous tuft on his lower lip and I listened. I was so impressed that midway through the interview, I walked up to get the CIO. We needed to hire this guy and the CIO needed to meet him.
A decade later, that boy/man, Karl Leinberger, is now clearly the latter. He’s the Chief Investment Officer at Coronation Fund Managers.
I wrote this not to criticise Karl’s tuft on the lower lip (apparently it’s still there and considered hip now), but a tribute to Coronation that is, as far as I know, the only company that issued a communique to its clients that highlighted the consequences of Finance Minister Nene’s ejection by President Zuma and the appointment of an MK soldier to the highest annals of government office.
To put it simply, this decision diverts South Africa from the path of a promising developing nation and hurls us onto the treacherous journey towards Zimbabwe. Please read Coronation’s missive that outlines the ghastly consequences.
What I find bewildering is that Coronation cannot be the only Corporate that sees the gravity of this decision. The financial consequences of the last 3 days are too grim to repeat, but the most ominous repercussion is yet to be felt: on confidence. Who will invest in our country with such uncertainty? How are we going to pay for imports which for the first time in decades will include food?
Where is the voice of Corporate South Africa? The fact that this is tantamount to blatant destruction of a people and a country for naked personal interest needs no elaboration. Isn’t it time, Corporate South Africa, you found your voice? It’s your duty AND it’s in your personal interest. Speak now or accept you were silent in SA’s greatest moment of need. Your children too will suffer the consequences.
Let me explain their deafening silence. There is business at stake. Corporates will prioritise their short-term vested interests. They have government tenders, pension mandates; they are bankers to the govt; they supply services to municipalities. But do they not realise, if unchecked, there soon WONT BE ANY MORE tenders, govt bankers, municipalities and pension mandates. Corporate SA needs to stand firmly against our ‘Zimbabwenisation’.
As any manager of a large organisation or country will affirm, it is far more difficult to fix something that’s broken rather than repair it while it’s functional – preventative measures.
We are on the verge of breaking something fundamental. According to the front page of the Weekend Argus, “Allegations have emerged that a tight circle of Zuma confidants outside the cabinet have known for months about Nene’s fate…Also yesterday, Minister in the Presidency for Planning Monitoring and Evaluation Jeff Radebe confirmed the cabinet had no idea Nene was about to be sacked.”
This is appalling news for the country. That something so important, so systemic, could be executed without the knowledge/consent of cabinet, but only within Zuma’s inner sanctum augurs grave peril for our future.
So what should Corporate SA do? They should realise we are crossing a Rubicon. They should do everything in their power to voice their concern – even Coronation’s missive was mild – it outlined the consequences but refrained from directly criticising the event. Corporate SA should compromise their myopic business interests and express their disapproval in every interaction with government administration, even if this compromises business in the short term; our only hope is that there are enough rational and sensible government officials who are not on Zuma’s gravy train that can envision the road ahead. Banks and pension funds should boycott government bonds, and even if this costs the taxpayer more via a higher interest bill, it would send a powerful signal via markets that this reckless road to Zimbabwe can be avoided, if it’s halted immediately.
Extraordinary times require extraordinary measures. I believe the sacking of a highly respected, seasoned Finance Minister who was groomed for years, and replacing him with a totally inexperienced ‘Zuma friend’ is tantamount to grave negligence by President Zuma.
In the Constitution of the Republic of South Africa, 1996 – Chapter 5: The President and National Executive the third most important function of the President is to promote the unity of the nation and that which will advance the Republic. ‘This’ is not ‘that’ which will advance the Republic. Within 72 hours the rand has lost +10%, the SA Government’s interest cost has escalated (the country’s largest borrower, paid for by none other than yours truly the population), banks have shed a fifth of their worth…
I believe President Zuma’s latest folly is one too far. These are grounds for a motion of no confidence. We as a people, with the mighty help of Corporate SA, need to set the wheels in motion to convince the National Assembly that Zuma has shown he is not fit to govern.
From our Constitution, “If the National Assembly, by a vote supported by a majority of its members, passes a motion of no confidence in the President, the President and the other members of the Cabinet and any Deputy Ministers must resign.”
Corporate South Africa, over to you. Make it happen.
Post script: This article was written on the afternoon of December 13th. Much to my relief I read that Pravin Gordhan was re-appointed as Minister of Finance that evening. This is no way absolves Corporate SA of their responsibility. Notwithstanding this immediate folly being averted, I hope this article sends a powerful message to any politician that believes his/her personal interests stand ahead of the nation. And I hope it will galvanise Corporate SA to be more proactive in our future – this was too close a call to ignore. Corporate SA, over to you, make sure we never reach this precipice again.
- Sunil Shah is a former money manager and author of White Man’s Numbers
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